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* The Business of Software

Guys, I need your advice.

For the past 5 years I have been doing my software business, developing and selling a development tool for a platform created by a very well-known large company.

I started as a one-man mISV and for the first 3 years the business grew quite well so I was able to hire 3 other developers. Then one day (about 1.5 years ago) suddenly the large company who owned the platform decided they are no longer interested and will stop the development of the platform. This essentially started to kill the ecosystem. From that moment our revenue started to slowly decline.

For the past 1.5 years I tried to redefine the product and reach other markets and platforms. I also tried to create other related products to sell to our customer base.

Unfortunately I failed to achieve any success (although probably I have been able to slow down the decline) and now our revenue reached a point where we are no longer profitable so I have to fire 2 of the developers to return to profitable level and that is a temporary solution since revenue continues to decline.

I personally have no debt, have savings that I can live off for a couple years, but the problem is I do not know what to do next. Do I continue looking for new ideas and live off my savings? Or I better find a regular job (I guess with my experience it will be some managerial position)? Any other options?

What would you do?

Thanks.

Hi B2B.
In case If firing 2 developers will return you to profitability and the last developer is able support this project  alone  you can concentrate on finding another niche for a new product.

By the way, I wonder  have you had enough profit at the moment you hired your 3 developers ?

IMHO a MicroISV should hire someone only if the company can survive after possible 25% drop of sales.

Technically this is not called firing but is a lay off.

Make sure you do it on friendly terms.

You should pay severance, BTW. I expect you'll say you can't afford to, which is unfortunate. If true, sell your house and use the proceeds to pay severance.

At this point you should try to get a job working for someone else.

You should survey your customers, and ask them what they need. Then go do that.

Even Cobol is still in use. Your customers will need the platform and your product for years to come. If you didn't already, invest on an annual subscription plan to offer priority support, so you can earn more from existing customers.

One day the customers will have o migrate to a different platform, talk to then and try to offer someway to help them migrate and offer your product on the new platform.

Java, Flash, .Net, Silverlight, Android, we have to make choices and not all of them work out. Anyway there is always the need to platforms to develop business solutions on, you've made a brand and company/product, evaluate the market to decide where to go next.

Thanks for replies, guys.

@MatrixFailure: yes the business was very profitable (about 40% profit margin) with 3 developers and was growing so I was preparing to hire more staff before the sudden change. 25% drop in sales we survived. It is 50% drop that started to kill us.

@Scott: I pay good salary to my developers. The 2 guys that will be fired...errr.. laid off will get nice severances (about 7x their monthly salaries). This is accumulated bonuses which I am going to pay them. I am very conservative in cash flow management and my company still has cash savings that can cover about 12 months of current expenses, so I do not need to sell a house :-)

@Jiri. Done that. Got some ideas, executed on them and it failed to sell. Lesson learned: if someone tells they will buy something if you implement it then it is likely that they will actually not do it when the time comes to part with the cash.

@Mauricio. Yes, we still sell both licenses and annual support. Hence, we still have about 50% of the revenue we had at our peak. We are not bankrupt and we will likely continue to have revenue to support me and probably one more developer for several months more. However the problem is lack of perspective for what we currently do. It is dying.

Hm, kudos to you for doing the survey. The results are curious.

Yes, when people tell you that they would buy something, it doesn't mean that they will really buy it. However, there's more to this.

If I were you, I would do the survey again. But this time, I would dig much deeper and read between the lines.

I would try to figure out what are their biggest challenges, problems and frustrations, and what are their trying to accomplish. You can even ask them directly.

If you can then come up with a product that would solve their pains and problems, and market is as such, it's guaranteed they would buy it.

You are not looking for "this might be cool" suggestions. You want to know what keeps them awake at night, what makes them frustrated and angry on daily basis, etc. You can then solve these REAL problems of theirs.

Jiri, thanks for your suggestions.

I understand what you say. I am CONSTANTLY trying to do that. It is not just one idea that I tried to explore. For the past 2 years I did market research on 5-6 new ideas (new or related to our main product). I have yet to find one that my analysis tell me is worth pursuing (like my original successful idea was).

I guess it was silly to make this post in the first place, but I was hoping to learn about some option that I did not think of.

Anyway thanks to everyone who replied.

There is a limit to how much information you can get from an online survey. Have you actually tried phoning customers? Try and find out what is really wasting their time and costing them money.

Andy, I routinely do a lot of one-to-one conversations with our customers (mostly email, not phone, but I do not think that matters a lot).

The problem is not that our current customers are not satisfied with our product. There are no major complains, customers actually love our product. The problem is declining platform, which means existing customers are moving to different platforms and we cannot acquire new customers at the rate we used to be able to do.

These other platforms all have their own established and good tool providers. We tried to enter these other markets but failed to achieve anything significant.

We were top provider in our niche. Now for the other platforms we try to support we are only a "me-too" provider and it is probably impossible to change this since these other platforms are very mature and saturated now (lots of high quality free and paid tools are available, I do not see how to beat that).

Without knowing you niche and the details of your product, can you leverage your existing user base to move you from a me too provider to a top tier one? Your existing customers are going to move somewhere and maybe they would like to stick with you.

OK, sounds like you are doing everything quite well.

I retract recommendation to get a job working for someone else.

Keep pushing at the entrepreneur thing, you'll eventually succeed.

I meant (I should have been clearer) to find a completely new product - nothing to do with your existing platform, but probably still selling to the market your existing customers are in.

I find that phone conversations tend to be much more discursive and open-ended than email conversations.

Ps/ If you got to be top provider in your niche once, don't you think you can do it again, in another niche? You should have more experience, cash, connections and resources than when you started out. Or do you think you were just lucky first time?

Shouldn't you just use your sales/marketing and development knowledge to start something completely new? At least not closely related to your previous product?

I know you have existing customer base and so on, but if you can't make profits there might be you are beating a dead horse. But still you have run a successful mISV and you are way ahead from many others who are starting now.

@Scott: I am seriously considering the possibility to get a job. I have recently got a nice offer that I may accept. I hope that spending some time in a new area may help me gain some new perspective and hopefully be able to find a new niche.

@Andy: I will probably try some phone calls (I tend to prefer email since I am not native English speaker and my speaking is worse than writing). I hope that I should be able to do it once again in another niche once I find one where I can execute. I was definitely partially lucky that I found my first niche, but I think luck did not play much role in later execution. Certainly I do have more expertize and cash than I was starting the first time (not sure if my connections are useful though, that would depend on the niche).

One more question: does anyone here have experience going from entrepreneurship to a regular job? I have been a business owner for the past 14 years (had a small consulting shop before my current ISV) and probably already forgot what it means to work for someone else.

"does anyone here have experience going from entrepreneurship to a regular job?"
I wanted to quit every day for the first two years working for the man.  To make it worse, I came from a failed partnership, so I knew going back to being my own boss was going to be bad for my family and self-worth, which made me resent my job even more.  It's been almost fourteen years since my partner and I wound down our business, and I still get the itch most months to go on my own.  Which is probably why I hang around here.

On the flip side, I have more financial and personal stability now then I did when I was self-employed, and a much better perspective on why that business failed.  I am well compensated for what I do in my job, and because of my background and experience I can fill in for several career staffers whose positions have been eliminated over the years.  My versatility allows me a good degree of autonomy and I don't lose sleep worrying about finding the next client and paying bills. 

You can always go back to being your own boss, if the role of an employee doesn't suit you.  But keep that to yourself, any prospective employer is unlikely to hire you for your entrepreneurial mindset.

A couple more suggestions, looks like you have tried pretty much everything people here have recommended. Do you live in a country with high cost of living? If you do not have family obligations (house, wife, kids), may be you could consider temporarily relocating to someplace with low cost of living while you recharge and come back with more ideas?

@Howard, thanks for sharing your experience.

@Sal, I actually have all those obligations: a wife, 2 kids and 2 houses. I already live in a country with lowish cost of living. I can afford not to work for the next 2-3 years since I have enough cash to burn but I am not sure if idling is going to help much (I do not feel exhausted at all). Perhaps I should have a long vacation with my family, like for a month or two while the kids are on summer holidays at schools? I did not have a real vacation for many years. Do vacations help to recharge with new ideas?

+1 to Howard

In my experience, employers are not fond of hiring people who are used to being their own boss. In their defense, sometimes they are right. It is a hard transition for some people.

It's hard to give much more input without knowing more about your business and situation. My advice is to look to some sort of mentor, who youcan trust to open more data, and help you decide on which path to follow.

I could advice to milk that cown until it's dead, fire everybody and just do support, and build a warchest big enough to be able to retire. But without knowing more about you, this could be a silly advice. If you don't even take vacations, what'd you do with so much free time?

Or pay for a consultant like Bob Walsh, Patrick MacKenzie and others on how to improve our business, don't think these guys couldn't do a better job than you on marketing.

Go back to the beginning. How did you find the market for your product 5 years ago. Was it just luck?

Even if it was luck, luck (right place, right time, right product) is a great helper. Bill Gates would have to build a different empire today, were he born in 1990.

Now B2B has  business. He has to decide what goal the business has, and plan a strategy to get there. Is it to be his retirement plan? Create a big company? Sell for a competitor? He has to decide.

We can make suggestions, but he's the one on the driving seat. From what I learned, even when the owner thinks the market is saturated, the business is at its best in terms of marketing and revenues, sometimes some simple changes can make revenues double or triple. A price raise, a support subscription, etc

Patrick McKenzie has posted some case studies about this, Marketing Sherpa publishes some cases too. So he can choose to improve and grow the business, cut expenses and save up for retirement, or another option he sees fit.

I don't think we can help much more without more information, this is why I suggested that he should find a mentor or hire a consultant.

It is too soon to retire, I am not that old :-)

I decided to have another round of talks with the customers and see if it can spark a new idea.

Thanks a lot for the advices and sorry for not disclosing the details (unfortunately you cannot discuss such things openly when you have customers).

I suggest you to have phone talks with customer or better yet visit their offices, it will give you more in-depth knowledge of how they setup and use the framework and your software.

does the niche you are in have a community?

I'm reading an excellent book you might find helpful:

What Customers Want
Talks about the difficulties of knowing what they want. THEY don't know what they want, but they do know their PAIN.
So if you ask "what do you want" they might say "a faster horse".
But if you ask them their pain they might say "stopping to feed the horse, throwing a shoe, speed".

http://www.amazon.com/What-Customers-Want-Outcome-Driven-Breakthrough/dp/0071408673